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Australian PMI: manufacturing falls sharply in April

01 May, 2014

The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) for April recorded its lowest reading since July 2013 with the latest seasonally adjusted index dropping 3.1 points to 44.8 (readings below 50 indicate a contraction in activity).

New orders dropped 10.5 points to 41.8 while manufacturing production also slowed with a fall of 6.6 points to 42.6. Reflecting these difficult trading conditions, manufacturing employment contracted at a faster pace in April (down 1.4 points to 43.6 points).

Conditions remain extremely difficult in the sector's export markets, with the exports sub-index remaining at around 30 points this month.

"The sharp fall in manufacturing activity in April highlights the ongoing weakness in the sector and the parts of the economy that are linked with manufacturing," Australian Industry Group Chief Executive, Innes Willox said.

"The softness in manufacturing also highlights the risks facing the broader economy and bolsters the risks of a contractionary budget that further slows activity by raising taxes or excessively cutting back on public sector demand. 

"The immediate outlook for the sector worsened with respondents to the Australian PMI survey citing a lack of new orders even after allowing for the usual run of seasonal holidays in April.

"Manufacturers also pointed to the renewed strength in the Australian dollar and the intensification of import competition to the detriment of sales of locally made products."

Willox called the food and beverage a 'very large sub-sector' that continued to play a vital role. "Well that's a very important part of our economy because it's all the food processing and the agri-business parts of our economy, and that's growing quite strongly," he said.

"The growth in that sector was less than the growth in the month before. But that has been a sector of the economy that has continued to grow consistently. And that's very positive and very welcome. That perhaps tells us where we do have some competitive strengths, and we're able to play to those strengths."

As for the upcoming federal budget, Willox had this to say: "I think that it's essential that it's a budget not just for one year, it's got to set us up for a decade. And we need to look at it like that, it's a budget for the ages in many ways. But we can't move into surplus too quickly because that would be ultra-contractionary for the economy. I think the government's understood that message. And you hear from ministers and the Prime Minister about moving back into surplus over four or five years."

Read full transcript of interview with Australian Industry Group Chief Execuitive Innes Willox on Sky News business.

Australian PMI Key Findings for April:

  • The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) fell 3.1 points to 44.8 in April (readings below 50 indicate a contraction in activity).
  • The new orders sub-index slumped with a fall of 10.5 points to 41.8.
  • Across the manufacturing sub-sectors, four expanded and four contracted in April. The very large food and beverages sub-sector expanded again this month (up 1.8 points to 55.2 points, three month moving average). The petroleum, coal, chemicals and rubber products (56.8 points), non-metallic minerals (58.5 points), and smaller wood and paper products (51.7 points) sub-sectors all expanded too, although their pace of expansion slowed notably this month. The large metal products and machinery and equipment sub-sectors contracted again in April (three month moving averages), with the metal products sub-sector continuing a decline dating from September 2010.
  • Manufacturing selling prices continued to contract – albeit at a slower pace (46.1) – and while wages and input prices only lifted moderately, the pressures on manufacturers' margins intensified further.

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